File2-page116 - Morduch(1999& Microfinance Literature...

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Unformatted text preview: Morduch (1999) & Microfinance Literature Credit and Microfinance Aniket (2005): Lending sequentially within a jointly liable group gives the borrowers incentive to monitor each other and reduces the rents left to the borrowers. Aniket (2006): Saving opportunities can only be offered in group-lending by restricting the number of borrowers in a group – thus creating intragroup competition for loans within the group. This would lead to negative assortative matching along wealth lines (the wealthy would group with poorer individuals) – in a two member group, the borrower’s wealth-threshold for joining the group would be greater than the non-borrower’s wealth-threshold. ⇒ Offering saving opportunities increases outreach Group Lending and Auditing the Project Auditing: Verifying the project’s outcome ◦ Again the lender can encourages the borrowers to audit their peers, especially given that borrower’s auditing technology is superior the lender’s Group Lending and Enforcement of Contracts Enforcement: Forcing the borrower to repay ◦ The lender may have very limited ability to enforce the contracts where as with an ability to social sanction each other, the borrowers amongst themselves find it cheaper to enforce the joint liability contracts Microfinance Two major mechanisms at work here (i) microfinance projects typically managed by NGOs who “care” more about reaching the poor than central government (more altruistic) – the perception that the poor were being rationed out of formal credit markets Development Economics, LSE Summer School 2007 113 ...
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